KATHMANDU, July 3: Nepal's public debt has continued to climb to nearly Rs 3 trillion as government revenue has become insufficient even to meet regular expenditure. By the end of the first 11 months of the current fiscal year 2025/26, public debt had increased by Rs 287.14 billion.
The government has increasingly been forced to borrow new loans to repay the principal and interest on old debt. It is also relying on borrowing to finance development spending and bridge the budget deficit.
According to the Public Debt Management Office, total public debt rose from Rs 2.674 trillion at the beginning of the fiscal year to Rs 2.961 trillion by mid-June, an increase of Rs 287.14 billion. The figure, which includes losses arising from exchange rate fluctuations, is equivalent to 44.87 percent of Nepal's Gross Domestic Product (GDP).
By mid-June, the government had mobilized Rs 418.12 billion in public debt. During the same period, it spent Rs 351.74 billion on servicing public debt, including principal and interest payments. The figures show that a large share of fresh borrowing is being used to meet obligations on existing loans.
The government's fiscal position points to growing dependence on debt. Revenue collection has consistently fallen short of targets in recent years, while recurrent expenditure has continued to increase. As the government struggles to finance salaries, social security allowances, subsidies and administrative expenses, it has become increasingly dependent on borrowing to fund development projects.
Public debt hits Rs 2.8 trillion mark
Of the total public debt, Rs 1.584 trillion is external debt, while Rs 1.377 trillion is domestic debt. External debt accounts for 53.49 percent of the total, while domestic debt makes up 46.51 percent.
Of the Rs 418.12 billion borrowed by mid-June, Rs 338.67 billion came from domestic borrowing and Rs 79.46 billion from foreign borrowing.
The rising debt burden has drawn criticism. Lawmaker Khushbu Oli recently questioned the government's use of concessional loans in the House of Representatives. While borrowing itself is not necessarily a problem, experts say debt should be invested in productive sectors that generate returns. Loans remain sustainable only when projects financed through borrowing are completed on time and produce economic benefits.
In Nepal, however, an increasing share of borrowing is being used to repay old debt, finance budget deficits and cover recurrent expenditure. This has raised concerns about the quality of public debt. Unless borrowed funds are invested effectively in productive infrastructure, energy, agriculture, industry and export promotion, the debt burden is likely to continue rising.
Experts warn that unless the government broadens the revenue base, curbs unproductive spending and ensures efficient use of borrowed funds, debt servicing costs will increasingly squeeze development spending. The government, however, insists that loans are being directed toward productive sectors. Addressing the House of Representatives recently, the finance minister said domestic borrowing had been allocated to priority projects.
By mid-June, the government had repaid Rs 284.46 billion in loan principal, excluding interest, and paid Rs 67.29 billion in interest. Most of the total debt servicing expenditure went toward principal repayments.
The government had set a target of mobilizing Rs 595.66 billion in public debt during the current fiscal year. By the end of the first 11 months, however, it had raised only Rs 418.12 billion, achieving 70.20 percent of the annual target.
Domestic borrowing has almost reached its target. Against a target of Rs 362 billion, the government had mobilized Rs 338.67 billion by mid-June, or 93.55 percent of the target. It now needs to raise another Rs 23.33 billion to meet the goal.
Foreign borrowing has fallen well short of expectations. The government had targeted Rs 233.66 billion in external loans but secured only Rs 79.46 billion during the first 11 months, equivalent to 34.01 percent of the target. Another Rs 154.20 billion in foreign borrowing remains to be mobilized. Of the total loans raised so far, 81 percent came from domestic borrowing and 19 percent from foreign sources.
As public debt has grown, debt servicing costs have also risen sharply. The government allocated Rs 411.01 billion for principal and interest payments in the current fiscal year. By mid-June, it had already spent Rs 351.75 billion, or 85.58 percent of the annual allocation, leaving Rs 59.26 billion yet to be spent. Debt servicing now amounts to 5.33 percent of GDP.
For domestic debt servicing, the government allocated Rs 343.56 billion and had spent Rs 285.22 billion by mid-June. This included Rs 229.61 billion in principal repayments and Rs 55.61 billion in interest.
For external debt servicing, Rs 67.45 billion was allocated, of which Rs 66.53 billion had already been spent. This comprised Rs 54.85 billion in principal repayments and Rs 11.68 billion in interest. Principal repayments on external debt have already exceeded the annual target. Against a target of Rs 51.88 billion, the government had repaid Rs 54.85 billion by mid-June, achieving 105.72 percent of the target.
